Workers' Compensation is a no-fault system that benefits both employees and employers; however, when fraud is involved, fault then attaches.

If an employee-claimant willfully makes a false statement or conceals information in order to receive Workers' Comp benefits, fraud has occurred. Similarly, if an employer or provider willfully prevents an employee from receiving benefits to which he or she may be entitled, that's also fraud—although this type of offense is more rare.

There's also premium fraud, a complex issue that spans all industries supported by insurance providers. This type of fraud exists when an employer knowingly misrepresents information pertaining to its business (for example, under-reporting the payroll information) to obtain insurance for a lower cost.

Claimant fraud—which occurs when employees knowingly lie to collect benefits—is the type of fraud that employers are in the best position to uncover. This includes claiming an injury was work-related when it wasn't, exaggerating an injury or secretly continuing to work while collecting benefits.

In August 2011, the National Insurance Crime Bureau (NICB) reported that the number of questionable claims (those that have one or more indicators of possible fraud) in the first half of 2011 rose 4.5 percent compared to 2010. Between 2009 and 2011, total questionable claims increased 18.3 percent. In Workers' Compensation, inflated medical billing and duplicate billing accounted for a combined 445 percent increase in questionable-claim referrals between the first half of 2010 and 2011.

Although addressing Workers' Compensation fraud is a global issue, employee fraud is one that employers can proactively work to prevent. And, since it is easier to prevent WC fraud than it is to prove it, the following are a few tips to address claimant fraud in the workplace.

1. Establish a Sound Hiring Policy

Creating a sound hiring policy is the best place to begin a policy of fraud prevention. Hire wisely, conduct background checks on all applicants and monitor new workers until a level of confidence is reached that they have the skills, character, and work ethic that fit the organization.

Some states have created legislation to support hiring practices that protect the employer as well as the employee. For example, the 2011 Workers' Comp Reform Act in North Carolina introduced a provision that no compensation is allowed under the Act if the employer can prove the employee made a false representation of a physical condition.

2. Keep safety top-of-mind

Maintaining a safe workplace reduces the chance of accidents and limits the opportunity for someone to fake an injury. Also, develop a transitional duty or return-to-work policy and let job candidates know that if they are injured on the job, the company will work with them and their doctor to help them return to work as soon as is medically reasonable.

3. Education on WC policies

Organizational awareness is key. Training and education initiatives designed to explain the impact WC fraud has on everyone, not just the employer or provider, encourages awareness of the consequences. Employers should adopt a zero-tolerance policy and make it clear that fraud can lead to termination and possible prosecution. Employees should be aware of how to report fraud and know that the organization's WC service provider will aggressively investigate suspected fraud.

4. Keep in touch with the injured

Stay in regular contact with employees who are off work due to an injury. Doing so lets them know that the organization cares about their well-being and wants them back at work as soon as possible. It's also important to document each contact or attempted contact. Failed attempts to contact an injured worker are considered “red flags” and may indicate that further investigation is needed. Any type of suspected Workers' Comp fraud should be reported immediately to the appropriate resource.

Joseph J. Abriola, AIC, is the senior vice president of claims and managed care for Key Risk, a member company of W. R. Berkley Corp. With more than 25 years in the insurance industry, Abriola has held various management positions focused on Workers' Compensation-claim and managed-care operations. Contact him at jabriola@keyrisk.com.

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4 Steps to Limiting Workers&rsquo; Comp Fraud

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